Federal Circuit Court of Appeals Upholds Denial of Sunoco’s One Billion Dollar Tax Expense

The Federal Circuit Court of Appeals issued a precedential opinion today affirming the Court of Federal Claims decision that federal corporate taxpayers may not deduct as a cost of goods sold expense an excise tax expense that was never actually incurred or paid, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman and Deputy Assistant Attorney General Travis A. Greaves of the Justice Department’s Tax Division.

In Sunoco, Inc. v. United States, No. 2017-1402, the Federal Circuit Court of Appeals affirmed the decision of the Court of Federal Claims and the position of the United States. Sunoco, Inc., a petroleum and petrochemical company, claimed approximately $1 billion in alcohol fuel mixture credits on its federal excise tax returns thereby reducing its federal fuel excise tax liability by the same amount. By including the $1 billion in excise tax expenses in its cost of goods sold, Sunoco, Inc. sought to reduce its federal corporate income taxes with an excise tax expense that was never paid. The Federal Circuit held that the plain language of the Internal Revenue Code precluded Sunoco, Inc.’s attempt to obtain a $300 million dollar “windfall” reduction in tax. The court also stated, “We have already established that Congress does not generally allow taxpayers to receive a tax benefit twice.”

Principal Deputy Assistant Attorney General Zuckerman thanked Tax Division attorneys Judith Hagley, Gilbert Rothenberg, and Richard Farber, who handled the case on appeal for the government.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

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Author: November 1, 2018